Arbitration and the Enforcement of Foreign Judgments in the Kingdom of Bahrain

August 23rd, 2015

Arbitration and the Enforcement of Foreign Judgments in the Kingdom of Bahrain

Has the country signed up to any international treaties?

New York Convention, 6^th April 1988.

How does the way arbitration works in the Kingdom of Bahrain differ from other international jurisdictions?

Bahrain was the first country to offer what is being called a “Free Arbitration Zone” and the first to introduce the concept of statutory arbitration for commercial and financial disputes. Legislative Decree No. (30) for the year 2009 With Respect To the Bahrain Chamber for Economic, Financial and Investment Dispute Resolution (the “Decree”) gives parties who are interested in international arbitration the option of holding the arbitration in Bahrain without concern that the courts of Bahrain might interfere with, or set aside, the resulting award, as long as the parties seek to enforce the award only in another country.

What are the main Arbitration bodies in this jurisdiction- what laws/ type of laws do they operate under?

• BCDR-AAA under Resolution No. (65) Issuing the Regulation of Dispute Resolution Procedures for Statutory ADR Tribunal.
• Gulf Cooperation Council Commercial Arbitration Centre (GCAC) under the Charter & Arbitral Rules of Procedure.
• The provisions of the UNCITRAL Model Law on international commercial arbitration attached to Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) (UNCITRAL 1985 with 2006 amendments) apply to any arbitration whatever the legal relationship of the parties to the dispute, if the arbitration takes place in Bahrain or abroad and the parties to it agreed to be subject to the New Arbitration Law.

Do people in this jurisdiction generally use local arbitration bodies or bodies in other locations? If so, which routine is most common – and does this vary with different types of transaction?

Litigants in Bahrain tend to use the local arbitration bodies available, such as the BCDR and the GCAC; however, parties have the option to choose a neutral site, reasonably convenient to both parties, with a friendly arbitration law, in which the courts have acquired a reputation for respecting arbitration awards.

How does recognition of foreign awards work in this jurisdiction?

According to the UNCITRAL Model Law, an arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced.

Foreign awards are recognized and honored in Bahrain as long as these awards are not inconsistent with Shari’a laws and public order.

Is there a difference in the way foreign arbitration decisions and foreign court decisions are recognized?

In accordance with article (252) of the Bahrain Civil and Commercial Procedures Act 1971, Court judgments and orders passed in any foreign country may be ordered to be enforced on the same conditions as are laid down in the law of that country for enforcing court judgments and orders issued in Bahrain.

Application for issue of an enforcement order shall be filed with the High Court in accordance with the terms and conditions for filing court action after payment of the prescribed fees.

Are there specific situations where awards are not enforceable?

Article (V.1) of the New York Convention provides a limited list of reasons for which a court may refuse to enforce an award, including technical or procedural deficiencies in the arbitration agreement or process.

UNCITRAL Model Law Article 36 provides Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:

(a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:

(i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or

(b) if the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the State; or

(ii) the recognition or enforcement of the award would be contrary to the public policy of the State.

(2) If an application for setting aside or suspension of an award has been made to a court referred to in paragraph (1)(a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security.

Are there any differences in free arbitration zones or secondary jurisdictions?

Yes, the BCDR has two types of jurisdiction. The first is called “Jurisdiction under the Law” which authorizes referrals to the BCDR of two types of disputes that would otherwise have been heard by the Bahraini courts. The first type comprises disputes brought by or against financial institutions licensed under the terms of the Law of the Central Bank of Bahrain when the amount in controversy exceeds 500,000 Bahraini Dinars (approximately US$1.33 million). The second type of dispute to be sent to the BCDR as part of its Jurisdiction under the Law consists of all “international commercial disputes” in which the same amount or more is in dispute. The Decree specifies that:

A dispute is international if the headquarters of one of the parties to the dispute, the place where a substantial part of the obligations arising from the relationship is performed, or the place with which the subject matter of the dispute is most closely related, is located outside the Kingdom (of Bahrain).

A dispute is commercial if its subject matter concerns relationships of a commercial nature, whether contractual or not, including any transactions or agreements for the supply, exchange, or distribution of goods or services; commercial management or agency; leasing; factory construction; consultancy services; engineering projects; licensing; investment and financing; banking transactions; insurance; franchising; joint ventures; other forms of industrial or commercial cooperation; and transporting goods or passengers by air, sea, or land.

The second is called “Jurisdiction by Party Agreement”, under which the “Free Arbitration Zone” falls, thus allowing the parties to have the additional option of conducting their arbitration within the Free Arbitration Zone, cutting off all recourse to the courts of Bahrain to challenge any subsequent arbitration award, unless that award is to be enforced in Bahrain. Jurisdiction by Party Agreement, by contrast, depends on contract. The Decree permits parties to agree to arbitrate a dispute before the BCDR, with no requirement as to the amount in controversy, and no requirement that the dispute be international or commercial. It is only necessary that “the parties agree in writing to settle it through the chamber.”

Are there any types of dispute that cannot use arbitration as a vehicle?

If the parties do not confirm their will to resort to arbitration as a dispute resolution proceeding, they shall not be entitled to use arbitration as a vehicle.

Are there any mandatory procedures that have to be followed?  

Parties must comply with the regulations and rules of procedures issued in the arbitration bodies before which they choose to litigate. If the parties do not wish to litigate before the arbitration bodies mentioned above, they must abide by the general rules and regulations stated in the Bahrain Civil and Commercial Procedures Act No. (12) of 1971.

Are there specific features required in an arbitration agreement?

The New Arbitration Law provides that Bahrain will use option 1 in Article 7 of the UNCITRAL Model Law for the definition of an arbitration agreement and its form. Article 7 of the UNCITRAL Model Law provides as follows:

(1) “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(2) The arbitration agreement shall be in writing.

(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.

(4) The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; “electronic communication” means any communication that the parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.

(5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

(6) The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.

Are arbitration decisions domestically binding?

Yes. In accordance with Article 35 of the UNCITRAL Model Law, an arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced.

Who can act as an arbitrator?

Anyone can act as an arbitrator as long as he/she has the required expertise. In accordance with UNCITRAL Model Law Article 11, no person shall be precluded by reason of his nationality from acting as an arbitrator, unless otherwise agreed by the parties. In accordance with Article 6 of the New Arbitration Law, non-Bahraini lawyers may represent the parties to a dispute in the case of international commercial arbitration in Bahrain.

In what circumstances can an existing arbitrator lose their status?

In accordance with Article 12 of the UNCITRAL Model Law:

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.

(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

According to the BCDR-AAA Arbitration Rules – Challenge of Arbitrators – Article (8) allows the parties to challenge an arbitrator whenever circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence. Such challenge is to be noticed by the administrator within 15 days after being notified of the appointment of the arbitrator or within 15 days after the circumstances giving rise to the challenge become known to that party. If the other party/parties agree to the acceptance of the challenge upon notification, the arbitrator shall withdraw, however, this is not the case if the other party/ parties do not agree to the challenge or the challenged arbitrator does not withdraw. Here, the administrator in its sole discretion shall make the decision on the challenge. The challenged arbitrator may also withdraw from office in the absence of such agreement.

Do the arbitrators have any potential liabilities?

In accordance with Article 35 under “Exclusion of Liability” of the Arbitration Rules issued by the BCDR-AAA it is stated that the members of the tribunal and the administrator shall not be liable to any party for any act or omission in connection with any arbitration conducted under the rules, except that they may be liable for the consequences of conscious and deliberate wrongdoing.

How does the cost of arbitration vary with other jurisdictions?

In accordance with Article 32 under “Compensation of Arbitrators” of the Arbitration Rules issued by the BCDR-AAA, arbitrators shall be compensated based upon their amount of service, taking into account their stated rate of compensation and the size and complexity of the case. The administrator shall arrange an appropriate daily or hourly rate, based on such considerations with the parties and with each of the arbitrators as soon as practicable after the commencement of the arbitration. If the parties fail to agree on the terms of compensation, the administrators shall establish an appropriate rate and communicate it in writing to the parties.

In accordance with Article 23, Chapter 5 “Attribution Costs” of the G.C.C Commercial Arbitration Centre’s “The Charter & Arbitral Rules of Procedures” it is stated: the Centre’s Secretary General shall prepare a list containing a provisional estimate of arbitration costs and shall instruct each of the parties to the dispute to equally deposit a certain sum as an advance on account for such costs. He may instruct the parties to make supplementary deposits during the course of the arbitration proceedings.

How does the cost of arbitration vary with the cost of litigation in this jurisdiction?

Unlike the costs of litigation which are significantly cheaper than the costs of arbitration, arbitration costs vary from one arbitration body to another and from one arbitrator to another, depending on the expenses of the details chosen by the parties, such as the time given for the case to be resolved, the necessity of experts and translators, the seat of arbitration etc. Ultimately, arbitration is a much more expensive procedure in this jurisdiction.

In accordance with the BCDR-AAA rules:

Are any important specific time limits to be aware of in the arbitration procedure?

Time limits for arbitration procedures in Bahrain are regulated according to the procedural rules of the arbitration bodies mentioned above unless agreed otherwise by the parties.

How is the arbitration process started?

In accordance with Commencing the Arbitration, Notice of Arbitration and Statement of Claim, Article 2 of the Arbitration Rules issued by the BCDR-AAA -section 1, the party initiating arbitration shall give written notice of arbitration to the administrator and at the same time to the party against whom a claim is being made. Arbitral proceedings shall be deemed to commence on the date on which the administrator receives the notice of arbitration. The notice of arbitration shall contain a statement of claim including the following:

(a) A demand that the dispute be referred to arbitration;

(b) The names, addresses and telephone numbers of the parties,

(c) A reference to the arbitration clause or agreement that is invoked;

(d) A reference to any contract out of or in relation to which the dispute arises;

(e) A description of the claim and an indication of the facts supporting it;

(f) The relief or remedy sought and the amount claimed; and

(g) May include proposals as to the means of designating and the number of arbitrators, the place of arbitration and the language(s) of the arbitration

Upon receipt of the notice of arbitration, the administrator shall communicate with all parties with respect to the arbitration and shall acknowledge the commencement of the arbitration.

Do parties have to be physically present?

In accordance with General Conditions – Representation – Article (12) of the Arbitration Rules issued by the BCDR-AAA the answer is no, representatives may be present on the parties’ behalf. Their contact details (names, addresses and telephone numbers) must however be communicated in writing to the other parties and to the administrator. Once the tribunal has been established, the parties of their representatives may communicate in writing directly with the tribunal.

Are formal hearings normal?

The Charter & Arbitral Rules of Procedure of the GCC Commercial Arbitration Centre states, in Article (21) “Hearings”, the following:

“The tribunal shall hold, at the request of either party, at any stage of the proceedings, hearings for verbal pleadings or for hearing testimony from witnesses or experts. If neither party makes such a request, the Tribunal shall have the option either to hold such hearings or to go ahead with the proceedings on the basis of the papers and documents, provided that at least one hearing has already been held.”

Failure to appear has some consequences. According to Article (27), if either party fails to appear at the hearings after receiving notification to appear from the tribunal, and does not provide, during a period of time being fixed by the tribunal, an acceptable excuse for his absence, such absence shall not bar proceeding with the arbitration.

How do the evidential rules work in such cases?

See above. Furthermore, Article (20) of the BCDR-AAA Arbitral Rules states that evidence of witnesses may also be presented in the form of written statements signed by them. Next, the tribunal determines the admissibility, relevance, materiality and weight of the evidence offered by any party. The tribunal shall take into account Applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client.

In what circumstances can an arbitration case be referred to national courts?

There are three cases in which an arbitration case may be referred to national courts:

(a) Where arbitral procedures fail to close a case with a final judgement that is accepted by both parties.

(b) If a substantial issue arises in the arbitral procedure, for example mismanagement or an unlawful act on behalf of the Tribunal. Thus, said case would then be transferred to the national court for a final judgement.

(c) Finally, if the arbitral procedure has taken more time than what was agreed on prior to the beginning, the national court would therefore take full responsibility for the case and its concluding judgements. On the other hand, the arbitral procedure may take longer than originally planned, this is when a formal request for an extension is given, if agreed upon by both parties. If the parties do not agree on the time extension, the initial time agreed upon will therefore apply.

Are interim measures possible?

Yes, Article (21) under Interim Measures of Protection of the BCDR-AAA Arbitral Rules states the following:

At the request of any party, the tribunal may take whatever interim measures it deems necessary, including injunctive relief and measures for the protection or conservation of property.

The Charter & Arbitral Rules of Procedure Article (28) “Interim Measures” further adds the exemplar measure of the preservation of the contentious goods, such as ordering the deposit of the goods with third parties or sale of the perishable items thereof in compliance with the procedural rules in the country where the interim measure is adopted.

Article 17A of the UNCITRAL Model Law provides that the party requesting an interim measure shall satisfy the arbitral tribunal that:

(a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and

(b) There is a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination.

What majority is needed for a decision?

In accordance with Article 29 of the UNCITRAL Model Law, in arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made, unless otherwise agreed by the parties, by a majority of all its members.

What types of awards are available?

All types of awards whether substantive, supportive, procedural, institutional, or ancillary are binding in Bahrain, irrespective of the country in which they are obtained, upon an application for enforcement is submitted in writing.

What are the methods for challenging awards?

In accordance with Article 34 of the UNCITRAL Model Law, an arbitral award may be set aside by the High Civil Court only if:

(a) the party making the application furnishes proof that:

(i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the State; or

(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the UNCITRAL Model Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with the UNCITRAL Model Law; or

(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the State; or

(ii) the award is in conflict with the public policy of the State.

An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the award or, if a request had been made under article 33 (on correction and interpretation of award), from the date on which that request had been disposed of by the arbitral tribunal.

The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

Can interest be applied for delays – if so how?

Article (268) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971 provides that interest may apply for delays. Upon the service of notification, the Court demands the convicted litigant to appear in Court and shall demand payment of the debt in one lump sum. If the said debt is satisfied together with the costs, fees, and interests, the debtor may be released. A brief summary of the aforesaid procedures shall then be recorded in the enforcement statement.

How are costs awarded?

If the arbitration is conducted under the GCAC rules, provision is made for the cost of arbitration to be regulated. The GCAC charges a nominal fee for every reference to arbitration, and charges fees for the services provided to the parties not exceeding two per cent of the amount in dispute. Remuneration for arbitrators is also determined as a percentage of the amount in dispute.

What is the domestic procedure for enforcing a foreign court judgment?

According to Article (252) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971, the domestic procedure for enforcing a foreign court judgment in Bahrain requires filing an application with the High Court for “issue of an enforcement order” in accordance with the terms and conditions for filing court action after payment of the prescribed fees.

No enforcement order may be passed except after ascertaining the following:

1. That the Bahrain law courts are not competent to hear the case in respect of which the court judgment or order was passed and that the foreign courts which passed it are competent in accordance with the international rules of jurisdiction set down in the laws thereof.
2. That the litigants to the case in respect of which the judgment was issued were duly summoned and properly represented.
3. That the court judgment or order has become final in accordance with the law of the cou7rt that passed it.
4. That the court judgment is in no way consistent with any judgment or order previously passed by the Bahrain courts and does not provide for anything which constitutes a breach of public order or ethics.

How does Islamic law affect the enforcement of foreign court judgments?

In accordance with Articles (254-255) of The Bahrain Civil and Commercial Procedures Act No. 12 of 1971, the High Court may not issue an enforcement order except after ensuring that the conditions required for the validity of the application are in accordance with the law of the country where it was created. Subsequently, the application shall not contain anything that constitutes a contravention of public order or ethics in Bahrain, and compliance with the rules set forth shall not prejudice the provisions of existing treaties.

Will it be relevant to consider if the foreign court had personal jurisdiction over the parties?

Yes. In accordance with Article (252) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971, no enforcement order may be passed except after ascertaining the that the Bahrain law courts are not competent to hear the case in respect of which the court judgment or order was passed and that the foreign courts which passed it are competent in accordance with the international rules of jurisdiction set down in the laws thereof.

Will the local party have to have been served with any specific notifications before the case for a foreign court judgment to be enforceable?

Yes. In accordance with Article (252) of the Bahrain Civil and Commercial Procedures Act No. 12 of 1971, it is essential for the judge, who is required to enforce the foreign judgment, to ascertain that the litigants have been duly summoned and properly represented.

Are judgments from some jurisdictions, e.g. other GCC states given greater deference – if so which ones and how?

Article (1) of the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications states the following:

1. Each of the GCC countries shall execute the final judgments issued by the courts of any member state in civil, commercial and administrative cases and the personal affairs cases in accordance with the procedures as provided under this agreement, provided that the court that issued the judgment has the jurisdiction in accordance with the international jurisdiction as applicable in the member state where the judgment is required to be executed or has the jurisdiction in accordance with the provisions of this agreement.

2. The preceding paragraph shall apply to any resolution whatsoever shall be issued in accordance with judicial or venue procedures by courts or any competent party in one of the member states.

Will domestic authorities ever only recognize part or limit awards?

Domestic authorities must execute the foreign judgments as issued, provided that they do not oppose the Shari’a Law and public order.

Will damages in a foreign judgment need to be paid in local currency/using local interest rates?

Judgment amounts are determined in the currency of the country in which the judgment has been issued or its equivalent in Bahraini dinars.